Fitch: Inkia's Consent Solicitation Credit Neutral to Negative

NEW YORK--()--Fitch Ratings expects Inkia Energy Limited's (Inkia; long-term IDR 'BB'/Outlook Negative) proposed amendments to the Indenture governing its notes to be a neutral-to-negative credit event. Rating actions may follow depending on the outcome of the solicitation and resulting changes in Inkia's credit profile.

New Parent to Have Weaker Credit Profile:

Israel Corp (IC) plans to spin off its international operations and other assets into a new holding company, Kenon, which will be the ultimate parent of Inkia. Kenon will likely have a credit profile weaker than that of IC since Israel Chemicals Ltd. ICL, the largest contributor to IC's consolidated net income, will remain under IC.

Inkia's ratings incorporate the credit quality and historical parent support reflected on subordinated loans and payment of no upstream dividends. Fitch revised the Rating Outlook to Negative after Inkia repaid USD168 million subordinated intercompany loans to Israel Corp in May 2014. Fitch considers that changes in Inkia's dividend policy following the change of parent or other upstream transfers may trigger a negative rating action.

Lower Investable Base due to Payment of Intercompany:

The company expects to apply USD125 million from the proceeds from the sale of its equity interest in EDEGEL S.A.A. (EDEGEL) to repay a short-term senior intercompany loan from IC Power. This short-term loan was granted in August 2014. Fitch expects the company to use the remaining proceeds from this divestiture acquire cash-contributing asset similar to EDEGEL or to reduce third party debt. The requested consent reduces the available funds for the company to invest in assets that contribute to its cash flow generation.

Rating Sensitivity:

A negative rating action could be triggered by a combination of: investments in projects with higher risk profiles than that of EDEGEL; deterioration of credit metrics as result of new investments, dividend payments while leverage is high; failure to decrease consolidated leverage below 4.0x after Cerro del Aguila and Samay I commence operations; concentration of assets in countries with high political and economic risk.

Although a positive rating action is not expected in the near future, any combination of the following factors could be considered: the Peruvian operation's cash flow contribution increasing beyond current expectations and/or leverage declines materially.

Additional information available at 'www.fitchratings.com.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May. 28, 2014);

--'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis' (Dec. 23, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726863

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Contacts

Fitch Ratings
Primary Analyst
Giancarlo Rubio
Associate Director
+1-212-612-7899
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Lucas Aristizabal
Senior Director
+1-312-368-3260
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Giancarlo Rubio
Associate Director
+1-212-612-7899
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Lucas Aristizabal
Senior Director
+1-312-368-3260
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com